New Zealand-based direct offshore foreign insurer Western Pacific Insurance has been allocated a “B-minus” rating with a stable outlook by Standard & Poor’s (S&P).

Western Pacific is owned and controlled by interests associated with Melbourne-based Dominion Underwriting Agency, which mainly handles hard-to-place risks.

S&P says Western Pacific has identified niche markets that should provide a good prospective competitive position, although at this stage the B-minus rating reflects the company’s short operating record, low capital base, a relatively small management team and limited financial flexibility.

“Its strong relationship with key distributors, limited competition in target segments and a conservative reinsurance program so far have supported the insurer’s good premium growth,” credit analyst Derryl D’silva said.

“Given the insurer’s higher-risk appetite, [its] management must search prudently for growth so as to build a sustainable financial profile.”

The reinsurance program sets a conservative 85% as its overall claim risk, which Mr D’silva says offers a reasonable degree of protection against the company’s capital base.

While Western Pacific relies on internal capital generation to support its growth, its “reasonably good” cashflows in the year to date and its medium-term plan to increase its capital base – partly through additional investors – “could help support [its] ability to build a sustainable financial profile”.

S&P says a rating change is not expected in the short term, but Western Pacific could be upgraded if it “substantially increases” its paid-up capital, coupled with sufficient reserves to adequately cover any outstanding claims. “Conversely, the rating could be downgraded if the company experiences extreme volatility in its earnings, and if its financial resources were insufficient to meet any outstanding claims in full.”